Could Dollar Thrifty Get a Higher Price? Here’s One Way How

Sep 29, 2010 8:43 pm ET

By Ronald Barusch

Ronald Barusch spent over 30 years as an M&A practitioner at Skadden, Arps, Slate, Meagher & Flom LLP before retiring this year. He is no longer affiliated with the firm and the views expressed here are his own.

The bidding war between Hertz and Avis over Dollar Thrifty illustrates a little understood fact about mergers: When regulatory issues extend a deal’s closing date past the shareholder vote, everything you know about “fiduciary outs” and “Revlon duties”—which require boards of directors to consider higher offers—goes out the window.

The delay in the Dollar Thrifty deal probably won’t be as long as some utility deals, which can go on for a year. But Dollar Thrifty is a good example of how the cut-off of the fiduciary out and the premature ending of the auction could result in a lower purchase price for shareholders.

Here is a brief review the facts of the Dollar Thrifty brawl: In April, Dollar Thrifty signed a merger agreement with Hertz, without talking to Avis. In July, Avis announced a higher offer. Dollar Thrifty’s board rejected that offer, saying it posed greater antitrust risks. Unlike Hertz, Avis did not offer a “reverse break-up fee” to compensate Dollar Thrifty if the deal fell apart over the regulatory issues. Hertz finally bumped its offer after Avis further increased its price.

Although Avis has responded by putting more money on the table, Hertz said its offer is best and final, and that it will walk if shareholders reject it. Late Wednesday Avis said it would throw in a reverse break-up fee should Dollar Thrifty shareholders reject the Hertz deal.

The antitrust issues are complex because all the parties are among the nation’s largest rental car companies. Both Hertz and Avis are in the middle of the Federal Trade Commission review, and we won’t know the FTC’s position until at least late this year. The Dollar Thrifty board has said it views Hertz’s offer as having fewer antitrust issues.

Avis vehemently disagrees, pointing to a series of inconsistent statements made by Hertz about its antitrust clearance process. Of course, this is standard merger back-and-forth when two companies fight over the same prey.

But here is where it becomes a bit strange: Once the shareholders vote to approve a deal, the auction stops. A winner has been declared—even if it takes months to work out the regulatory issues and close the transaction.